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2009 September 22   06:32

STX Pan Ocean wins US$5.84 bln iron-ore shipping deal from Vale

South Korean dry bulk carrier STX Pan Ocean Co. Ltd. said Monday evening that it has entered into a US$5.84 billion long-term contract with Brazil-based mining company Vale S.A. (VALE: News ) to transport iron ore. Under the deal, the company will haul a total of 3 billion tons of iron ore between Brazil and China over a period of 25 years, starting from the fourth quarter of 2011.
The contract is the largest order for STX Pan Ocean and is expected to provide a boost to the company, which has reported losses in the first two quarters of the current year. The company, like other shipping lines, was hurt by a drop in freight rates amid the global economic downturn. STX Pan Ocean noted that it was in need of a large amount of cargo to generate new profits during the times of extreme recession in shipping industry.
The deal which runs through the fourth quarter of 2037, also enables STX Pan Ocean to lock in rates amid rising competition. The company said that its main objective for entering into the consecutive voyage contract, or CVC, is to secure a stabilized source of revenue and profit.
Shipping companies are increasingly seeking long-term contracts to lock in fees after spot rates fell 92% last year amid an increase in overcapacity and slumping demand. The Baltic Dry Index, a measure of commodity shipping rates, declined 1.61% to 2,318.00 on Monday.
STX Pan Ocean said it has concentrated on seeking new business opportunities and developing strategic business models between shippers and carriers in Brazil and China. The company added that strengthened marketing power and the recent recognition of the company in Brazil contributed to the signing of the deal.
Global mining companies, including Vale and BHP Billiton plc (BHP: News , BLT.L), are selling more iron ore to China as a US$585 billion economic stimulus program in that country, including spending on infrastructure, has spurred demand for steel and other construction materials. The dry bulk shipping sector has been helped by robust demand for commodities in China.
STX Pan Ocean, the world's fifth-largest dry bulk shipping company, had signed a contract of affreightment, or COA, with Chinese steel mill Angang Group for US$230 million for ten years in July, and another COA for two years with Vale.
STX Pan Ocean now has 69 ships and a total capacity of 3.71 million dead weight tonnage, or DWT, along with nine new ships being delivered in 2009. The company transported 47 million tons of cargo during the first half the year.

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